Chapter 8 - Contract Administration: Technology and Practice in Europe

RECOMMENDATIONS

The 2001 contract administration scan team was privileged to be able to travel to Europe and visit with the representatives of five host countries (France, the Netherlands, Portugal, Sweden, and the United Kingdom). The team witnessed many alternative contract administration practices and unanimously believes that a number of these can be immediately applied in the United States.

Following the European tour, the scan study moved into the scanning technology implementation phase (STIP). All team members are actively implementing practices that are applicable to their positions in the transportation industry, but a smaller STIP team was created to move the implementation forward quickly. The STIP team met to determine the most appropriate concepts for implementation from the numerous innovations and best practices discovered on the scan.

The STIP team developed a questionnaire concerning the top 13 concepts likely to have the most potential to impact the U.S. highway industry. All of the scan team members responded to the questionnaire. The entire scan team rated the implementation options on a scale from "5 – Extremely Important" (idea or recommendation is very critical and will significantly improve contract administration procedures or project delivery methods) to "1 – Not Important" (idea or recommendation will not significantly improve current practices or solve any real problem). The table below provides the ranking for the implementation items.

All 13 of the implementation concepts are important, but the top 3 were determined to be the focus for implementation because of their high potential impact and relative ease of implementation. These three techniques, and six of the top eight, are found in the contracting techniques and performance contracting categories. These three concepts are presented as primary findings below. The other concepts are summarized as additional findings in the order in which they are found in this report.

PRIMARY RECOMMENDATIONS

The United States has much to learn from European highways agencies. In particular, the best-value approach combined with the ability to negotiate technical terms and alternative concepts with selected contractors has enabled European agencies to award contracts at reasonable cost to those providers with a proven track record for responsiveness to the public sector's needs. The FHWA and the State DOTs should consider more use of best-value negotiated contracts, giving contractors the opportunity to develop reputations that enable them to be exceptional performers and compete in best-value procurements. The FHWA and the DOTs also should consider moving toward the use of more performance specifications, which will allow the private-sector industry to innovate and continuously improve the quality, efficiency, and safety of the highway system. These performance specifications will require associated performance indicators to measure and benchmark exceptional performance. Specifically, the scan team recommends that the following concepts and tools be explored in the United States as a means to speed the delivery of our infrastructure and increase the quality of construction and maintenance.

• Use best-value award techniques in the selection wherever it is shown that value can be added through quality or innovation.
  
• Explore techniques to fairly and equitably employ confidential negotiations and discussions of alternative proposals to capitalize on the creativity and innovation of the private sector.
  
• Create consistent performance specifications that define the owner's performance objectives, which can be used to promote consistency in specifications while allowing for innovation in design, construction, and maintenance.
  
• In conjunction with the performance specification system, develop consistent and objective performance indicators that allow for the measurement and verifiable benchmarking of the performance specifications. These performance indicators should be used to create a system of continuous improvement for the industry.
  
• Explore the formation of an audit group, similar to the U.K. PRIDe group, as a means to benchmark performance indicators for use by all States. This team will be able to ensure, through diligent benchmarking, that projects are being delivered at competitive costs in lieu of ensuring competitive costs through our current low-bid system.

ADDITIONAL RECOMMENDATIONS

The primary recommendations above will be the focus of the STIP team. However, the scan tour revealed other concepts that have the potential to improve the U.S. highway industry. The scan team recommends that efforts be made to employ these concepts whenever opportunities arise. These additional concepts are ranked in the table above and presented here in the order in which they are found in this report.

Contracting Techniques

The European highway community is benefiting from widespread use of best-value procurement, greater latitude to enter into competitive negotiations, more use of alternative designs in proposals, extensive use of management contracts, long-term contracts tying maintenance to construction, and payment methods that are based on outcomes at the end of the projects rather than payment for work as it is put in place. In addition to the primary contracting techniques listed in the primary recommendations above, the scan team recommends that the following concepts be implemented:

• Use management contracting on repetitive work where project characteristics display a potential to save construction and procurement costs.
  
• Explore integrated supply chain contracts to capitalize on the efficiencies documented in the manufacturing sectors.
  
• Test payments by milestones and payments by availability as a way to tie quality performance to payment structures.

Design-Build

The European countries visited on the scan tour provided the team with many valuable design-build contracting insights. The primary lessons learned on this scan tour relate to the types of projects utilizing design-build, the use of best-value selection, the percentage of design in the solicitation, design and construction administration, third-party risks, the use of warranties, and the addition of maintenance and operation to design-build contracts. The scan team recommends that the following concepts be implemented:

• Capitalize on best-value selection processes to promote competition and innovation among design-builders.
  
• Promote appropriate use of performance specifications with low levels of design in design-build RFPs to promote innovation and accountability from the private-sector proposers.
  
• Assign third-party risks to the party in the contract that can best control them.
  
• Ensure construction quality and cultivate a pool of qualified lifecycle service providers through the incorporation of maintenance and operation into design-build projects.

Performance Contracting

The scan team discovered applications of performance contracts in Europe for long-term maintenance, DBM, and concession contracts. The essential lessons learned regarding performance specifications on this contract administration scan can be summarized into the categories of performance specifications, performance indicators, warranties, and QA/QC. The scan team recommends that the following concepts be implemented:

• Catalog those performance contracting methods currently in use in the U.S. transportation industry.
  
• Employ an aggressive pilot study program exploring the use of performance contracting for both construction and maintenance to determine the efficiency of current methods and to develop consistent and objective performance indicators. This will allow for the measurement and verifiable benchmarking of the performance and the trial of other promising performance contracting methods.
  
• Nationally benchmark the performance of long-term warranties against the use of performance contracts to determine which system provides better value to the public.
  
• Promote the U.S. trend for contractor-controlled quality control programs and develop incentive/disincentive systems for quality such as the red card/yellow card system used in Europe.

Alternative Financing

European highways agencies are working closely with private-sector partners to finance, build, and maintain projects that are not viable using traditional funding mechanisms, either because of lack of funding or sociopolitical constraints. These alternative funding sources take a whole-life approach to project design, construction, and maintenance. Alternative payment methods offer solutions that increase price competition from the private sector, but also incentivize and improve quality in the completed and maintained project. The scan team recommends that the following concepts be implemented:

• Take a whole-life approach to planning through linking construction quality and maintenance to private financing.
  
• Leverage innovative concepts from the private sector to overcome social and political barriers for improving the infrastructure.
  
• Explore the use of shadow tolls and AMPMs as a means to defer infrastructure payments while decreasing congestion and increasing safety and availability.
  
• Measure and benchmark the performance of these alternative payment mechanisms to create an opportunity for continuous improvement measurements.

Concessions

Concessions are commonly used for both construction and maintenance of European motorways. The long-term nature and best-value selection of a concessionaire provides the opportunity to benchmark and achieve exceptional performance. Used in appropriate circumstances, concession contracts may prove to be very beneficial to the U.S. highway sector. The scan team recommends that the following concepts be implemented:

• Investigate and document the long-term performance of concessions globally as a benchmark for current U.S. finance, design, construction, operations, and maintenance procedures.

• Consider more closely the use of concessions on existing networks and new facilities when creating U.S. strategic network plans.
  
• Develop policies that allocate risks to the parties that can best manage them in concession contracts, specifically in the areas of environmental and right-of-way issues.
  
• Employ a PPC that is appropriate for use in the United States when making the economic decisions surrounding concession contracts.
  
• Develop appropriate performance specifications and measurement standards to routinely apply on concession contracts to ensure consistency from project to project and State to State.